The signing of an intergovernmental agreement between Turkey, Bulgaria, Romania, Austria and Hungary in a celebratory ceremony in Ankara on 13th July was another milestone for the proposed E7.9 billion (US$ 11.05 billion) Nabucco gas pipeline, which will bring Caspian gas to Europe via the Balkans, Turkey and the Caucasus.
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The signing of an intergovernmental agreement between Turkey, Bulgaria, Romania, Austria and Hungary in a celebratory ceremony in Ankara on 13th July was another milestone for the proposed E7.9 billion (US$ 11.05 billion) Nabucco gas pipeline, which will bring Caspian gas to Europe via the Balkans, Turkey and the Caucasus. Announced with much fanfare, it is hoped that the 3300 km line will reduce European dependence on Russian energy by providing diversification of supply. However, the pipeline has been mired in political problems, and critics have questioned its long-term viability.
The signing officially marks a political agreement between the transit countries. Germany is not a transit country and so did not sign the agreement, but it has officially stated its full political support. These commitments are vital to the project, which, like the BTC pipeline before it, relies heavily on intergovernmental support. Nabucco has been championed by the West, including the USA. US President Barack Obama has appointed Ambassador Richard Morningstar as a special envoy for Eurasian energy and Morningstar, along with US Senator Richard Lugar, attended the Ankara signing. The construction of the pipeline, and subsequent flow of gas to Europe through an East-West corridor, is key to US and EU energy strategy.
There are, however, some obstacles in the course. First gas is likely to come from Azerbaijan’s Shah Deniz field, but more gas will be needed and subsequent suppliers aren’t confirmed. It is thought that gas could be sourced from Turkmenistan, but this will require the construction of a trans- Caspian pipeline to hook up with Nabucco. The Kurdish regions of Iraq have been proposed as a possible gas source, whilst Iran, so far, has been discounted. A final financing decision is due next year, but this does depend on the supply issue.
Meanwhile, progress has been made on Gazprom and Eni’s South Stream project, the E10 billion pipeline seen as a rival to Nabucco. Azerbaijan has promised priority to Gazprom in buying gas from the second phase of the Shah Deniz project. Gazprom has favoured entering into basic cooperation agreements with supplier countries, in contrast to the intergovernmental negotiations required for Nabucco.
Last week another agreement was signed in Ankara, this time for South Stream, allowing Gazprom and Eni to use Turkey’s territorial water for the rival pipeline. Russia also agreed to join the proposed Samsun-Ceyhan pipeline, to be built by Eni and Turkey’s Calik Holding AS, to carry crude from the Black Sea to the Mediterranean.
Despite this latest development, Turkish Energy Minister Taner Yildiz has assured all parties that Turkey will stand by its commitments for the Nabucco line, stating that “No matter which project is signed, including the South Stream, our determination for Nabucco will not be weakened and we stand by our commitments”.
Turkey holds a key position here: it has been able to use Nabucco as a bargaining tool for its EU membership talks; and it has made inroads with Russia in the course of discussing South Stream, including securing supplies of Russian gas from the project, and making progress in negotiations for Turkey’s first nuclear power plant, to be built by a Russian company.
Pipeline projects do have a tendency to divide and rule, to pair up unlikely friends and create foes. The European Commission recognises this and is pushing for increased market liberalisation and better interconnections between energy supplier and recipient. But to take the EU as one entity is to ignore the agenda of each country within it. In fact, Nabucco has been called by the Financial Times “a test of EU energy policy and a test of European solidarity”. Some European countries have professed EU solidarity whilst continuing to pursue their own energy plans and protect their own energy giants. The European Commission has recently fined E.ON Ruhrgas (Germany) and GdF Suez (France) E553 million each for a market sharing agreement involving Russian gas.
The Economist’s recent assertion that ‘boring energy liberalisation may be a surer route to energy security than glamorous pipelines” brings me to the question of style vs. substance. I’d hope that Nabucco has both.